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Are The Markets Pouting?

Not long ago – a few months – I read portions of Kevin Phillips latest book, ‘Bad Money: Reckless Finance ….. and the Global Crisis of Capitalism.’   The book salon at firedoglake had a session with Phillips, and I’ve seen him both on C-SPAN and Bill Moyers show just a week or so ago.

Over the weekend I watched a lot of C-SPAN online and in our living room while keeping an eye on the ‘economic crisis’ confronting the country.  I also read quite a bit.  One of two places I have considerable trust in their economic/finance explanations are with Ian Welsh who now writes at firedoglake, although I know him from The Agonist (a long-time haunt of mine), and Stirling Newberry, who is also writing at The Agonist.  I trust them because I understand what they write…….

We all know that in finance there are two emotions that rule the markets. Fear. And Greed. Greed. And Fear. To work in the financial industry, you must dedicate yourself to these principles. The Fear Theory of the crisis says that banks are terrified of being caught lending to a bank that may go under.

And suddenly I’m learning about LIBOR and learning others are as well.

Lending, if you recall, is giving someone money now, and hoping to get it back later, with interest. Now if the money that comes back later buys less than the money that is given today, then the lender has lost buying power. It doesn’t matter what the numbers come out to, he’s behind. That’s why we have concepts like “inflation,” because they take away how much buying power has been lost. I’m going to leave aside all kinds of arguments over inflation, because the number we want here is whether banks think they are ahead.

There were a couple of things:  Last night on MSNBC, Rachel Maddow had an economics professor, Laura Tyson, who talked about this being a “credit contraction.”  Tyson was the former chair of President Clinton’s council of economic advisers.  It’s not about liquidity; it’s about credit.

You know, all along, this has been called a bailout bill. It’s such a misnomer. We are in the midst of a massive credit contraction. It’s strangling the economy. It’s making it impossible for businesses to borrow, to keep their businesses going. It’s making it impossible for students to borrow, to keep their loans going, and homeowners to stay in their homes.

what people should be concerned about is their income and their jobs, because the credit contraction means that employers, companies, cannot continue operations at their current levels. They cannot get the credit they need to keep their operations moving. The greatest danger now is a real economy recession. Stock markets can go up and down over time, retirement accounts can go up and down over time. The key thing is to get the economy safe from what looks like to be a bit of a serious recession.

Just as Rachel told Dr. Tyson, I too began to get a better picture of the consequences and the possibilities of what could transpire because of Wall Street’s greed. Because as Stirling pointed out in his post linked above, you’re on Wall Street for one basic reason – greed.   He also provides gives a shot of adrenaline with a few suggestions of his own.  One commenter called the record-breaking, history making plunge in the stock market yesterday as the “markets are pouting” because Paulson couldn’t get Congress to cough up a blank check to provide a safety net for his ‘fat-cat buddies in the market.’  The answer was a resounding, Fuck No! and the response from Wall Street – flooding droplets into the bucket trying to force the hand of Congress.  Then today’s trading rallied back thunderously although ‘credit was frozen.’

Talking Points Memo accumulated some quotes from various economists some of whom I’ve heard on television over the past few days and I’m not much in agreement with some them regarding Wall Street vs. Main Street.  I happened to catch Rep. Marcy Kaptur (D-OH) on CSPAN giving her piece against the bill on the House floor  – Financial Market Bill (pdf alert).  Here she is on Washington Journal on CSPAN this yesterday morning now.  Bush interrupts her time on CSPAN with something about the economy getting moving again.

David Cay Johnston writes:

Keep in mind a paper released last week by two economists at the International Monetary Fund, who studied 42 banking crisis over the past 37 years. Their conclusions (not the IMF’s) are: bailouts often do not work, they often result in more bad practices, and they distort economies by transferring wealth from taxpayers to bankers and their customers.

Ya think!

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